About Us

Eyes on Trade is a blog by the staff of Public Citizen's Global Trade Watch (GTW) division. GTW aims to promote democracy by challenging corporate globalization, arguing that the current globalization model is neither a random inevitability nor "free trade." Eyes on Trade is a space for interested parties to share information about globalization and trade issues, and in particular for us to share our watchdogging insights with you! GTW director Lori Wallach's initial post explains it all.

Lori Wallach on HuffPo: "Turn Away from the Cliff on Trade, State Legislators Group Tells Obama"

"It says a lot when the new trade policy platform adopted by the bipartisan National Conference of State Legislatures (NCSL) is more progressive than where the Obama administration is signaling it may be heading on trade.

"On the other hand, the "Free Trade and Federalism" resolution passed at the NCSL's annual conference in Louisville yesterday largely restates Obama's campaign commitments to fix the most damaging aspects of the North American Trade Agreement (NAFTA) model.

...

"So what the heck was the administration thinking - politically or policywise - when President Obama announced a few weeks ago that he wanted to resolve some outstanding commercial issues with one of Bush's leftover NAFTA-style trade deals and get Bush's Korean Free Trade Agreement to Congress in early 2011?"

July 28, 2010

NCSL Calls for Trade Reform as Korea FTA Battle Looms

Today, the National Conference of State Legislatures approved a resolution calling on the Obama administration to make significant reforms to the U.S. trade agreement model. This is yet another indication of the nationwide, bipartisan demand for the administration to implement the president’s campaign commitments to trade reform.

The NCSL policy, “Free Trade and Federalism,” sets forth what the leading state legislator organization deems an acceptable trade policy. The Korea FTA does not meet the NCSL’s standards.

July 27, 2010

From Building Cars to Packing Meat

When the Bush administration tried to sell the Panama and Colombia FTAs, it argued that the
FTAs would simply make our trade relationship a two-way street with these
countries since they already enjoy greater access to the U.S. market through trade
preference programs.(And we have still
seen rising deficits with the CAFTA countries even though much of their exports
fell under preference programs before CAFTA was implemented). South Korea,
though, does not enjoy any preferential market access, so if the FTA were to be
implemented as-is and the trade barriers come down, we will most likely see a
tremendous surge of imports.

To get a hint of the possible jobs impact of the Korea FTA,
we’ll dive more deeply into that U.S. International Trade Commission (USITC)
study that we mentioned a few weeks ago.

The USITC study indicates that jobs will likely be lost in
many high-wage industries, including auto manufacturing and electronics
manufacturing. The table below displays the USITC’s estimates of impact of the
Korea FTA upon employment and the trade deficit in a few sectors of the U.S. economy,
available in Tables 2.3 and 2.4 of the report.
The USITC gives employment changes in percent terms rather than in numbers of
jobs, so to make the loss more tangible we’ve computed the job loss numbers
based on the USITC percent change estimates and sector employment data from the
Bureau of Labor Statistics.

According to the USITC study, the auto manufacturing
industry may lose about 1,750 workers due to the Korea FTA.* The average hourly
earnings of workers in the auto industry was $23.61 in 2008, which was 9.2
percent greater than the average hourly earnings of all workers employed in the
private sector ($21.62). The average hourly earnings of workers in the
electronic equipment manufacturing industry, projected to lose about 5,000
workers, was $30.38 in 2008, which was 40.5 percent greater than the average
hourly earnings of all workers employed in the private sector.

As the table shows, large rises in the trade deficit in
these sectors are driving the employment loss, totaling up to almost $1.7
billion for motor vehicles and parts, other transportation equipment, and
electronic equipment alone. Interestingly, the USITC predicted that there would
be an absolute decline in the total value of exports in some manufacturing
sectors, not just a worsening of the balance. For example, total U.S. exports of
electronic equipment are expected to decline by up to $381 million due to the
implementation of the Korea FTA (see Table 2.3 in the study).

July 16, 2010

Strong Demand for a Fix to Korea FTA

Since Obama’s announcement that he plans to move forward with Bush’s Korea FTA, a chorus of groups have called for fundamental changes to the pact as written.

And what has everyone riled up goes far beyond the oft-cited auto and beef issues. In order for Obama to get Congress and the American public to support this FTA, he’s also going to have to fix the investment and financial services provisions, among other things.

Here’s a selection of quotes from news stories about the Korea FTA that have come out over the last couple of weeks:

“Some Democrats and consumer activists have protested the pact over
concerns with the financial services title of the bill that they say
encourages the same deregulation policies that led to the recession.”

- Congress Daily, “Envoys Make Case To Continue Work On
Agreements,” 7/15/10

“Since Obama and Lee's June 26 announcement, groups such as the
AFL-CIO labor federation and Public Citizen have raised concerns about
investment, financial services trade and other provisions of the pact
they say also need to be fixed.”

- Reuters, “S.Korea open to ‘creative’ fix for US autos,
beef,” 7/14/10

“The stated focus on only narrow changes to the FTA puts the
administration at odds with a number of FTA critics, including the
AFL-CIO and members of the House Trade Working Group who are on record
with a broad range of objections. A union source said …the extent of the
political fight that will break out over the U.S.-Korea FTA…will depend
on the substance of the improvements that the administration can
obtain.”

July 15, 2010

WTO Doha Round: Cranking up the Deficit

The pro-WTO Peterson Institute for International Economics
(IIE) recently published a new study projecting the effects of implementing the WTO Doha Round tariff cuts that
are currently “on the table”, i.e. cuts that are in the “negotiating modalities
drafted by the chairs of the Doha Round negotiating groups.”

The study finds that these tariff cuts that are on the table
will lead to an increase in the annual U.S. trade deficit by $6.6 billion.
The authors also test a scenario in which customs reform and liberalization in
services, chemicals, electronics, and “environmental goods” are added to the “on
the table” tariff cuts, which is supposed to make the Doha
package more attractive to the United
States. However, the authors estimate that adding
in these additional sectors will still make the U.S. trade deficit rise by $6.5 billion.

Nowhere does the study indicate that this significant
increase in the deficit may be a problem, though. This is partly because the
authors use an overly simplistic method to estimate the GDP gains that are
supposed to accrue because of the Doha Round. All they do is sum the increased imports to and exports from a country
and then multiply that sum by 0.46, which is supposed to yield the “GDP gains”
that the trade generates for that country (see footnote 5 here where they explain this questionable procedure). They treat imports and
exports indiscriminately, so U.S. GDP is supposed to gain substantially even
though the deficit rises higher. Under their methodology, U.S. exports could stay constant or even decline
under the Doha
proposal and U.S. GDP would increase significantly as long as imports increased
substantially. It’s pretty surprising that this massive 200-page study would
use such a simple method that glosses over the crucial difference between rises
in exports and imports – we should expect something more sophisticated.

This calculation method is strange given how national
statistical agencies calculate GDP. GDP equals all spending by consumers, businesses, and the government, plus
exports, minus imports. The authors’ GDP growth calculation procedure strangely
treats imports and exports as if they have the same effect on GDP.

IIE’s decision to gloss over the impact of a rising deficit
is especially irresponsible at a time when the U.S. trade deficit is skyrocketing.
Trade flow data for May was released Tuesday and it wasn’t pretty. The
deficit increased by 5 percent even though the price of imported oil fell. The
rise was so significant that some financial services firms revised their second
quarter GDP growth projections downward, according to Reuters:

A 2.9 percent rise in overall imports suggested U.S. demand was
holding up better than some had feared. But with more of that demand being
sated by overseas products, the widening trade gap was seen weighing on U.S. gross
domestic product.

RBS lowered its estimate of second quarter U.S. economic
growth to 2.8 percent, while JP Morgan cut its to 2.5 percent. Both had
previously forecast it at 3.2 percent.

This rise in the deficit was largely driven by surging
Chinese imports, and the IIE study indicates that the Doha Round will only
exacerbate the problems of our trade relationship with China. The nonagricultural market access
offers on the table, mostly consisting of tariff cuts on manufactured goods,
will raise U.S. imports by $12.7 billion annually, but only boost exports by
$3.8 billion (see Table 1.2 here).
China,
on the other hand, will enjoy an export boost of $15.6 billion from nonagricultural
market access, but will only import $6.7 billion more. This is the result of
the concessions being so unbalanced in nonagricultural market access: under the
Doha scenario, U.S.
exporters will pay only $2.5 billion less in tariffs to export to other
countries, whereas foreign businesses exporting to the U.S. will pay $11.7
billion less in tariffs (see Table 2.3 here).

We need a trade policy that promotes more balanced trade,
not more of the same with the WTO.

July 13, 2010

Korea Also At Threat from FTA

We've been talking a lot about how Bush's Korea FTA would give investors incorporated in Korea but with (current or planned) investments in the U.S. with greater rights than U.S. investors under U.S. law.

...Korea will be unable to avoid the situation where foreign investors are treated differently from domestic investors or citizens under KORUS-FTA. Throughout modern Korean history, the focus the Korean government has been mainly on economic growth. To rapidly achieve this goal, the direction of Korean policy on land use control has been to make compensation for interference with property rights as infrequently as possible. The legislature did not seriously consider the compensation requirement as unnecessary to the private property rights and governmental goals. As a result, many zoning systems and land use laws have been adopted without providing for compensation.

Additionally, it has been difficult for an individual claimant to seek compensation. Although it may be apparent that private property is being indirectly expropriated by a law, compensation will not provided unless the law includes a compensation requirement. The only way to plead compensation is to appeal to the Korean Constitutional Court. However, even if the Court finds that the law is unconstitutional, it may not grant compensation by itself. Instead the claimant must wait until the law is amended to include a compensation clause. Furthermore, the Constitutional Court does not have authority to force the legislative body to amend the law if the legislature does not want to. Consequently, the compensation mechanism for indirect expropriation in Korea does not work efficiently and property rights have fallen victim in the name of public objectives...

FTA requires that compensation “be paid without delay” and “be equivalent to the fair market value of the expropriated investment immediately,” while the Korean compensation mechanism provides otherwise. The Korean Constitutional Court stated in the Public Facility case that compensation does not need to be only monetary and legislators may adopt alternatives to alleviate damages such as the cancellation of the alleged action or the right to request that the government purchase the affected property...

Kim's piece focuses primarily on land-use regulations, as opposed to more intangible notions of property in financial services contracts like derivatives, which are also offered up as the basis for standing to launch an "indirect expropriation" claim under Bush's Korea FTA if regulations get in the way of profit.

Kim is clearly sympathetic to the idea of the FTA forcing a change in Korean legal norms, but is honest enough to admit that the Korean practice for most of its history is not to pay compensation for "indirect expropriation" or "regulatory takings" when there's a public interest at stake.

None of this has hindered Korea's development. In fact, it is exactly Korea's embrace of unorthodox (but historically proven) policies that helped catapult the country from the development level of Sub-Saharan Africa to OECD levels in little over a generation, as Korean scholar Ha-Joon Chang documents.

(Daniel Soonghyun Lee, in a piece sympathetic to the FTA, also notes some inconsistencies of the FTA's dispute settlement mechanism with Korean civil law procedure, which is based on German law via Japan.)

This is not the first time that "trade liberalization" seems conditioned on deregulation of Korean domestic policies. During the Asian Financial Crisis, for instance, Korea committed to the IMF that it would deepen its financial services commitments at the WTO. Now, the country appears poised to deregulate via a trade pact yet again.

July 07, 2010

When does Wall Street get capped?

Rep. Paul Ryan (Wis.) and Sen. Judd Gregg (N.H.), the senior Republicans
on the House and Senate Budget committees have praised a proposal by
the fiscal panel’s Democratic co-chairman, Erskine Bowles, to limit
government spending and revenue to 21 percent of gross domestic product.

Most serious policy analysts believe that government should provide
services that it does more efficiently than the private sector (e.g.
defense), while leaving services it does less efficiently to the private
sector. However Mr. Bowles apparently thinks that the government should
instead adhere strictly to his magical 21 percent number. This means
that Mr. Bowles would insist that the private sector provides services,
even if it can be shown that the public sector is more efficient,
because of his reverence for the number 21. In other words, Bowles is
apparently prepared to slow growth and cost workers jobs out of his
devotion to the number 21.

Actually, I'd love to see the financial sector get similarly capped. Oh wait, but that would run afoul of our trade agreements, which state:

In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test...

Unlike some policies that propose to constrain the size of the the financial sector or individual financial institutions (like a firewall between investment and commercial banks), a 21 percent cap on any service sector would be more likely to meet the GATS' definition of being "in the form of a numerical quota."

If government services were per se bound to GATS, the Bowles proposal would almost assuredly be ruled a GATS violation. They're not, but financial services definitely are. Yet another way that neoliberals selectively apply their ideology in the service of corporate welfare.

Asked on Wednesday by Senator Orrin G.
Hatch, Republican of Utah, why, in her role as solicitor general,
she had made an aggressive argument in defending a federal statute
outlawing the sale of dogfighting
videos, Ms. Kagan said poor legislative craftsmanship had left her
little choice.

“I hesitate to criticize Congress’s work,” she said, “but it was a
statute that was not drafted with the kind of precision that made it
easy to defend from a First Amendment challenge.”

Ms. Kagan aligned herself with Justice Oliver Wendell Holmes Jr., who
held his nose in the early years of the last century while voting to
uphold statutes he thought were foolish.

Justice Holmes, Ms. Kagan said, “hated a lot of the legislation that was
being enacted during those years, but insisted that if the people
wanted it, it was their right to go hang themselves.”

In his memorable dissent
in Lochner v. New York, a 1905 decision that struck down a New York
work-hours law, Justice Holmes wrote that the Supreme Court should work
hard to stay out of the way where economic legislation is concerned.

“A constitution is not intended to embody a particular economic theory,”
he wrote. “It is made for people of fundamentally differing views, and
the accident of our finding certain opinions natural and familiar, or
novel, and even shocking, ought not to conclude our judgment upon the
question whether statutes embodying them conflict with the Constitution
of the United States.”

That is essentially the answer Ms. Kagan gave, in a kind of confirmation
jujitsu, to questions from senators of both parties eager to see their
views made into law by the courts rather than Congress.

As it happens, this kind of deference to elected officials is exactly what is missing from the pro-corporate investment rules in the Korea FTA, which President Obama committed to move over the weekend.